Divestitures

Information Technology Outsourcing (ITO)

In December 2014, we announced an agreement to sell our ITO business to Atos for $1,050, which includes the assumption of approximately $100 of capital lease obligations and pension liabilities. The final sales price is subject to final closing adjustments with additional consideration of $50 contingent on the condition of certain assets at closing. The transaction is subject to customary closing conditions and regulatory approval and is expected to close in the first half of 2015. We expect net after-tax proceeds from the transaction of approximately $850.

ITO services include service arrangements where we manage a customer’s IT-related activities, such as application management and development, data center operations or testing and quality assurance. Our ITO business includes approximately 9,800 employees in 45 countries. As part of the transaction, Atos will provide IT services for certain of our existing BPO customers as well as a portion of our internal IT requirements. These continuing cash flows were determined to not be significant, and we will have no significant continuing involvement in the ITO business post-closing.

As a result of this pending transaction and having met applicable accounting requirements, in the fourth quarter 2014, we reported the ITO business as held for sale and a Discontinued Operation and reclassified its results from the Services segment to Discontinued Operations. All prior periods have accordingly been reclassified to conform to this presentation.

In the fourth quarter 2014, we also recorded a net pre-tax loss of $181 related to the pending sale reflecting the write-down of the carrying value of the ITO disposal group, inclusive of goodwill, to its estimated fair value less costs to sell. Goodwill was allocated to the ITO disposal group based on the relative fair value of the business. The estimated fair value may be adjusted, and we are likely to incur additional charges prior to the closing of the transaction, which will be recorded in Discontinued Operations. In addition, upon final disposal of the business, we expect to record additional tax expense of approximately $75 within Discontinued Operations primarily related to the difference between the book basis and the tax basis of allocated goodwill. All the assets and liabilities of the ITO business are reported as held for sale at December 31, 2014 and are included in Assets and Liabilities of discontinued operations, respectively, in the Consolidated Balance Sheet at December 31, 2014.

Since the ITO business comprised a portion of several reporting units, we tested the retained goodwill of those reporting units for impairment and concluded that the goodwill remaining in those reporting units was not impaired since the fair values of those reporting units exceeded their carrying values.

Other Discontinued Operations

During the third quarter 2014, we completed the closure of Xerox Audio Visual Solutions, Inc. (XAV), a small audio visual business within our Global Imaging Systems subsidiary, and recorded a net pre-tax loss on disposal of $1. XAV provided audio visual equipment and services to enterprise and government customers. As a result of this closure, we reported XAV as a Discontinued Operation and reclassified its results from the Other segment to Discontinued Operations in the third quarter 2014.

In May 2014 we sold our Truckload Management Services, Inc. (TMS) business for $15 and recorded a net pre-tax loss on disposal of $1. TMS provided document capture and submission solutions as well as campaign management, media buying and digital marketing services to the long haul trucking and transportation industry. As a result of this transaction, we reported this business as a Discontinued Operation and reclassified its results from the Services segment to Discontinued Operations in the second quarter 2014.

In 2013, in connection with our decision to exit from the Paper distribution business, we completed the sale of our North American and European Paper businesses. As a result of these transactions, we reported these paper-related operations as Discontinued Operations and reclassified the results from the Other segment to Discontinued operations in 2013. We recorded a net pre-tax loss on disposal of $25 in 2013 for the disposition of these businesses. In 2014, we recorded income of $1 in discontinued operations primarily representing adjustments to the loss on disposal recorded in 2013 due to changes in estimates.

Summarized financial information for our Discontinued Operations is as follows:



	Year Ended December 31,
	2014									2013									2012
	ITO			Other			Total			ITO			Other			Total			ITO			Other			Total
Revenues	$	1,320		$	45		$	1,365		$	1,335		$	497		$	1,832		$	1,213		$	756		$	1,969

Income (loss) from operations	$	74		$	(1	)	$	73		$	70		$	2		$	72		$	47		$	17		$	64
Loss on disposal	(181		)	(1		)	(182		)	—			(25		)	(25		)	—			—			—
Net (loss) income before income taxes	$	(107	)	$	(2	)	$	(109	)	$	70		$	(23	)	$	47		$	47		$	17		$	64
Income tax expense	(5		)	(1		)	(6		)	(24		)	(3		)	(27		)	(16		)	(5		)	(21		)
(Loss) income from discontinued operations, net of tax	$	(112	)	$	(3	)	$	(115	)	$	46		$	(26	)	$	20		$	31		$	12		$	43

The following is a summary of the the major categories of assets and liabilities of the ITO business held for sale at December 31, 2014:



	2014
Accounts receivable, net	$	213
Other current assets	146
Land, buildings and equipment, net	220
Intangible assets, net	197
Goodwill	337
Other long-term assets	147
Total Assets of Discontinued Operations	$	1,260
Current portion of long-term debt	$	31
Accounts payable	32
Accrued pension and benefit costs	9
Unearned income	64
Other current liabilities	112
Long-term debt	44
Pension and other benefit liabilities	25
Other long-term liabilities	54
Total Liabilities of Discontinued Operations	$	371

The following is a summary of selected financial information of the ITO business for the three years ended December 31, 2014:



	Year Ended December 31,
	2014		2013		2012
Expense (Income):
Depreciation of buildings and equipment	$	98	$	99	$	98
Amortization of internal use software	9		10		2
Amortization of acquired intangible assets	27		27		27
Amortization of customer contract costs	26		22		15
Operating lease rent expense	258		241		185
Defined contribution plans	8		7		2
Interest expense ⁽¹⁾	4		3		3

Expenditures:
Cost of additions to land, buildings and equipment	$	105	$	99	$	140
Cost of additions to internal use software	2		4		15
Customer-related deferred set-up/transition and inducement costs	26		35		60

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(1)	Interest expense is related to capital lease obligations, which are expected to be assumed by purchaser of the ITO business.